Every Berkshire Hathaway investor should keep this number in mind

If you are invested in Berkshire Hathaway (BRK.A 0.51%) (BRK.B 0.40%) then you are definitely a fan of his inimitable boss, Warren Buffett. The “Oracle of Omaha” is one of the most successful investors in history – and one of the richest.

Those lucky enough to have invested with Buffett and his firm early on have done well, and that’s easy. Just a $1,000 investment in Berkshire in 1980 would be worth $2.4 million today.

A shortcut to valuing Berkshire Hathaway

Those looking to add more Berkshire to their portfolios might ask, is now a good time? Is the company fairly valued in the market? There are all kinds of ways to try to measure this. It’s not easy though. The company is a massive conglomerate with disparate businesses and defies simple attempts to value its stock. Should you use a price-to-earnings (P/E) ratio? Reserve price (P/B)? How about a discounted cash flow (DCF) model?

Instead, you could look at Buffett himself. In 2018, Berkshire’s board changed the rules so that Buffett could buy back Berkshire shares whenever he believed they were priced “below Berkshire’s conservatively determined intrinsic value.” While this is not a quantitative measure, it is an indicator of Buffett’s own sentiment. If major buybacks occur, it means Buffett believes his stock is undervalued. This is a number Berkshire investors should pay attention to.

Here is the history of the company over the past five years.

BRK.A Share Buybacks Data (Quarterly) by YCharts.

Berkshire spent billions buying stocks during that time. Interestingly, redemptions hit their lowest level in the last quarter. I would keep an eye on this trend, but remember there are a lot of factors that go into this decision. Just because buybacks are lower doesn’t necessarily mean the stock is overpriced in Buffett’s view; he may think there is a better way to use the company’s resources at that time or in the near future.